Shares of organic light-emitting diode (OLED) technology maker Universal Display (OLED) are up $2.76, or 9%, at $34.67, after JMP Securities’s Alex Gauna today reiterated a Buy rating, and a $50 price target, after raising estimates for next year based on three factors: increasing use of the technology by Samsung Electronics (005930KS), a possible deal with LG Electronics (066570KS), and possible inclusion in the OLED display of a forthcoming “iWatch” from Apple (AAPL).

Gauna increased his 2014 estimates to $199 million in revenue and $1.20 in EPS from a prior $190 million and $1.10. That is more or less in line with Street consensus of $199.4 million and $1.23 per share.

I spoke with Gauna a short while ago by phone and he talked about things he gleaned from conversations with Universal management and investors last week, as well as his own background “checks” of things such as the iWatch.

On the Samsung front, where Universal is already getting $40 million from the company this year, Gauna thinks that can go higher in coming years as Samsung makes more use of the company’s green-colored “host” and “emitter” technology, while possibly adding blue color at some point.

“One thing I didn’t fully appreciate is the revenue ramp of green materials that they will get from the Galaxy S4 and the Note 3,” said Gauna, referring to this year’s top-of-the-line smartphone/phablet offerings that use Universal’s technology. “But also that the company [Universal] will not have an inventory overhang that it suffered from last year.”

Gauna thinks that Samsung is working on two new “backplanes,” the parts of a display that actually make the pixels on screen. Samsung is working on an “M5” backplane, “and there’s an M6 coming behind it,” he says, to replace today’s “M4” backplane that’s in the S4 and the Note 3. “It sounds like there’s potential for larger-screen tablets from Samsung” in 2014, he writes.

“Universal doesn’t control when customers launch, and they wouldn’t specifically tell me, but there’s possibility for Samsung to expand into the 10-inch [OLED-based display] space from the Note 3.” Gauna thinks Samsung may pull forward the introduction of the next Galaxy smartphone from last year’s April debut to sometime earlier in the year, perhaps around the time of Chinese New Year.

“The nature of the conversations I’ve had had with management, there is the insinuation, it was implicit in the nature of the conversation, that Universal is working with Samsung” on the new backplanes, he tells me. “I haven’t heard of other companies working with Samsung on this.”

Presumably in 2014, Universal will get something like $50 million from Samsung,” observes Gauna, and maybe $60 million in 2015.

On the LG front, Gauna believes if the company started producing OLED displays right now, its capacity coming on line would be about half what Samsung is producing today. LG is a customer today of Universal’s, but it doesn’t have a license agreement with Universal like Samsung does, which commits Samsung to certain minimum purchase volumes.

“So now and some point when they turn on manufacturing, could get an agreement like Samsung has,” he says of LG.

LG, he notes, doesn’t have as much intellectual property in OLED as does Samsung, which means LG might have to purchase more in the way of materials from Universal.

“For example, LG is using more of the yellows, and Samsung using more of the greens, so it’s not one-to-one in terms of potential materials sales,” he says.

“You could almost argue it could be more,” he claims. “Samsung has contributed a lot more IP than LG, which may give Universal more leverage with LG, though management didn’t say that.”

He points out that LG’s ability to manufacture OLED displays is helped by a cross-licensing agreement with Samsung. The details of that agreement are sealed, but Gauna believes that “it’s in Samsung’s interest to not be a monopolist” in OLED manufacturing because its divisions that make displays and phones want there to be other suppliers in the market.

Lastly, Gauna tells me “Apple is launching an OLED-based iWatch,” though he’s “not sure what the timing is” though “It sure feels like it’s a 2014-type of development.” That conclusion is based on industry conversations Gauna has had, not feedback from Universal.

“The stage is set for an OLED watch in 2014; we know they’re [Apple] working on it.”

I asked whether Universal’s materials would necessarily be used in an iWatch, to which Gauna replied “Apple would have to include Universal technology to make a compelling product.”

He notes, in that regard, that “LG has two different prongs of investment, for flexible displays, which they’ve already done, and a conversion line, so Apple would have two sources [LG and Samsung], and possibly also AU Optronics (AUO).

“I don’t see how that would fundamentally impact their business model,” says Gauna. “There are too many other foundational patents that come into play that they [Universal] have.”

“They have already prevailed in Korea and Japan, and I can’t imagine they’ve signed the deal they did with Samsung, if Samsung saw a hole in the patent position.”

He added that “If there were other sources [of host and emitter materials], they [Samsung] would have already been taking them” from another supplier.

On that score, Gauna tells me “I don’t know if Samsung is really more or less confident in getting other sources” given that the company had to acquire a company called Novaled in order to develop so-called transport dopants that it couldn’t develop itself.

“These organic chemists are a scarce resource,” he concludes, “This market has been a long time in coming. Universal has been at this a long time. What we are finally seeing is the breakthrough.”

I point out that Universal’s contract is not available to scrutinize in its entirety, and that a manufacturer can take supply from a company for immediate purposes but later move on to another supplier when it becomes available.

Gauna concedes “it’s a fair point, it’s a risk factor for sure.” Just as Apple moved away from using Samsung NAND flash memory chips in its devices, Samsung could move away from Universal at some point.

But Gauna thinks that there are several precedents in small tech companies that bode favorably for Universal.

One is Qualcomm (QCOM), which for years went through drama about whether it would score Nokia (NOK) as a customer for phone chips. Qualcomm finally won that battle. Something similar is apparent in networking chip vendor Netlogic, which was bought by Broadcom (BRCM). Investors worried that the company was overly reliant on Cisco Systems (CSCO) as a 60% customer. But as use of the technology expanded, Netlogic, and Broadcom, ended up with more customers.

And like Cree (CREE), which is a prominent supplier of ordinary LED technology in lighting, Gauna thinks Universal can expand in its applications. “The question is, Does this thing prove to be more than a one-hit wonder?” he tells me. “With Cree, whose stock is still volatile, they became a very large, very important tech company off that initial base in providing the backlight for phones” and then moving on to lighting.

“In Universal’s case, what they are doing is so much more important” than what Cree was supplying.

He points out, too, that Universal may have another upcoming product opportunity with Samsung: blue-colored materials, which are harder to do:

Universal can do blue in fluorescence, which is different from the phosphorescence used for green and red. Phosphorescent has better longevity but it is harder to do that with blue wavelengths because blue wavelengths are so much shorter. Samsung uses a different type of technology [to do blue wavelengths] but they have to do some design tricks, they have to use more of the material to get it to perform.

Gauna concurs with Canaccord Genuity’s Jonathan Dorsheimer, who has warned of the risks to the stock because beyond 2017, when Universal’s patents expire, and there is risk in the company relying on its revenue stream from Samsung.

“If you think Samsung is the only customer Universal will have, then you don’t want to own this stock,” he says.

Shares of organic light-emitting diode (OLED) technology vendor Universal Display (OLED) are down $1.20, or 3%, at $36.08, as the stock receives some criticism today from a familiar opponent, Manuel Asensio-Garcia, whose firm has many times in past questioned the basis of the company’s intellectual property claims in the field.

The subject of the note circulated today by Asensio is a report issued yesterday by Goldman Sachs analyst Brian Lee, who reiterated a Buy rating on the shares, and a $45 price target.

Lee wrote that two new gadgets from Samsung Electronics (005930KS) debuted on Wednesday, the Galaxy Note 3 smartphone, and the Galaxy Gear smart watch, will use Universal’s OLED-based display technology:

We believe the Note 3 is likely to use a similar recipe of both red emitter and green emitter/host materials from OLED that is currently designed into Samsung’s flagship Galaxy S IV smartphone. Given the larger screen size of the Note 3 relative to the S IV (5.7” vs. 4.99”), we estimate 15mn Note 3 units equates to roughly 20mn S IV units on a like-for-like revenue impact basis to OLED. To put this into perspective, we note S IV units are expected to average c.20mn units per quarter in the near-term, thus suggesting potentially significant revenue upside from a successful Note 3 launch in 2H13. Also, while we maintain more of a wait-and-see stance on the Galaxy Gear, we see increasing proliferation of OLED display technology across a greater number of applications as a medium-to-longer term positive for OLED. We reiterate our Buy rating, and see an official guidance increase on the 3Q13 earnings call as a key catalyst for the stock. Our 2013 revenue estimate of $136mn remains above the high end of guide and consensus of $128mn.

Asensio criticizes Lee for his claims about the use of red and green emitter materials:

This leaves the impression that Mr. Lee has made a unique and sudden discovery, a discovery of something so new and unexpected and material that it would cause UDC to change its official guidance. In fact, on UDC’s last earnings call UDC stated that “we’re now in the Galaxy 4 and a number of other products and that use red and green material.” Furthermore, at a Cannacord Conference on August 15, 20013 UDC stated “in this quarter [Samsung] included our green and our host materials.”

Asensio claims that Universal’s management’s statements publicly don’t support the assertions Lee is making about what Samsung is using or not using:

Perhaps Mr. Lee is confused and simply missed UDC’s public proclamation. Immediately before the second quarter was announced, Mr. Lee spoke to UDC’s management during a public meeting. A transcript of this meeting is available. During the open discussion, Mr. Lee repeatedly probed and questioned UDC’s management about what they knew about Samsung’s recipe for the Samsung Galaxy S IV. Oddly UDC denied knowledge in many different ways. UDC told Mr. Lee that they didn’t know, that Samsung had no obligation to tell them and that they could not speak for Samsung. In fact, UDC refused even to confirm that the Galaxy S IV used green phosphorescent emitter material or that if Samsung was using phosphorescent green emitter material, whether UDC was the supplier, exclusively or otherwise. More concrete is the wild disconnect between UDC’s reported sales and timing of Samsung’s build-up of startup inventory of new products, the timing of its purchases of UDC’s green phosphorescent product, the decline in unit pricing and margins of UDC’s red phosphorescent emitter material sales to Samsung versus to the timing of introduction of the Galaxy S IV phones and now the Galaxy Note 3.

I have a request in to Lee’s office for any feedback on the claims Asensio raises, and have made requests to Universal as well.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.